Can Reynolds American Get a Reduced-Risk Label for This Tobacco Product?

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The reduced-risk application Philip Morris International (NYSE: PM) filed for its iQOS heat-not-burn electronic cigarette seemingly gets the most media attention, but it is not the only company with such a petition before the U.S. Food and Drug Administration, nor was it the first. That distinction belongs to a Swedish manufacturer of a snuff-like offshoot called snus, and now the regulatory agency has agreed to accept another application for this little-known but increasingly popular tobacco product, this time from British American Tobacco's (NYSE: BTI) Reynolds American division.

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A pinch between the cheek and gum

Snus are typically small packets of moist snuff that are placed under the upper lip, though tins of loose powder can also be found. The biggest manufacturer of snus in the U.S. is Reynolds, whose Camel brand is the leading moist snuff on the market. Swedish Match (NASDAQOTH: SWMAF) is the largest producer in Sweden, but the third largest in the U.S.

The history of snus extends back to the indigenous Taino people of the Caribbean, who first snorted ground-up seeds of a Mimosa-like tree that produced a hallucinogenic effect. This snuff-like powder called cohoba was first chronicled in 1497 by the monk Ramon Pane, who sailed with Christopher Columbus on his second journey to the Americas.

It ultimately was introduced into Europe, where it became associated with tobacco snuff. A Swedish customs document from the mid-1600s made the first official mention of snus, and in modern times it has grown so popular there that it has long since surpassed cigarettes in sales. Today, the sale of snus is banned in the European Union except for Sweden, as well as in Australia.

The market leader

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In its third-quarter earnings report before officially folding into British American Tobacco's portfolio, Reynolds said Camel snus owned a rather staggering 75% share of the U.S. market. In comparison, its Camel brand of cigarettes had only an 8.3% share.

In March, Reynolds submitted 18 modified-risk applications with the FDA that cover six different styles of Camel snus. Recently, the agency accepted and filed them for substantive review, which should be completed within the year.

Reynolds notes in the SEC filing that the FDA has not granted any other manufacturer a reduced-risk designation, but that doesn't mean it wouldn't.

The potential for greater growth

Shortly after Philip Morris had submitted its IQOS reduced-risk application with the FDA in December 2016, the agency considered Swedish Match's application for its snus and ruled the company couldn't remove a warning label saying the products may cause gum disease and tooth loss, because the FDA found that they could.

However, the FDA held off on deciding whether the company could claim they were less harmful than cigarettes and whether they caused mouth cancer because it believed Swedish Match could refile an application "supporting issuance of modified risk orders."

Swedish Match may have overreached in its efforts to get a more favorable review than was warranted, but the FDA actually concluded snus "may pose substantially lower health risks to individual smokers who switch completely to these products." That bodes well for Reynolds when its snus come under review -- it could successfully become one of the first companies to earn a reduced-risk designation for a tobacco product.

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Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.